Tripping Over All This Cash . . . Or Maybe Not

How is it possible to have loads of money and be as content and comfortable as seemingly possible and then is a relatively short amount of time be bankrupt?

Only fools would allow something like this to happen, right? Surely it would have to be the uneducated or the superficially smart or the short-term-only thinker, right?

The answer, of course yes . . . and at the same time a fog horn – NO!

What Is Your Actual Net Worth?

I was once told that you should manage your personal finances the same way a company would manage theirs. Balance sheets, proformas, cash flow statements, general ledgers and whatever additional form of analysis and reporting you can manage to find a use for are applicable not just to the C Corp but the Self Corp.

With all of these tracking and analysis pieces, how could a person or company lose track of what is most vital in running a business and in the very same sense, how could a person lose track of their ability to provide for themselves or even a family when they see everything going on? CASH is the problem.

In every case, whether it is as grand as a company like GM or as small as a person recently into their profession, cash flow builds them up or cash flow crumbs them and their ego into nothing.

You could have the strongest heart in the world and without blood and good blood, your body will, in very short order stop working. Cashflow is the bloodflow of operating and sustaining. Having a net worth of a million or billion or several billion, can do little to support you if that “worth” if stuck. If you have your money tied up in, you name it, a house, a product, a marketing plan, an accounts receivable, and accounts payable, whatever. If you are in a hands tied position with your value, your worth, something that is not money but has a dollar sign tied to it, and you actually need cash, immediately transferable value, in other words “liquidity”, it doesn’t matter how much you are worth.

Cash Is King

In short order your cashflow net worth can be zero or negative when it comes to cashflow; in turn reducing your ability to draw out any value in your actual net worth.

The caution: You are only as valuable as you have cash to operate. Don’t put all of your liquidity into less than immediate returns.